Definition

1. Microfinance is providing small loans and savings services at the doorsteps of those people who have been deprived of financial services from the banks and other financial institutions.

2. Unlike the general banking system, where clients go to the banks for financial services, in microfinance the banks go to the doors of the clients.

Definitions: MicrofinanceA type of financial service that is provided to low-income individuals or groups who would otherwise have no other means of gaining financial services. The goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.

Objectives

The multi-microfinance models microfinance institutions have almost common objectives:

i) increasing service scale ii) reaching the poor iii) changing lives of the poor and iv) attaining financial viability for

sustainability.

Microcredit

A contractual agreement in which a borrower receives something of value now, with the agreement to repay the lender at some date in the future.

An extremely small loan given to impoverished people to help them become self employed.  Also known as "microlending."

Low Rate of Default

Although most modern microfinance institutions operate in developing countries, the rate of payment default for loans is surprisingly low - more than 90% of loans are repaid. 

Rate of Interest

Like conventional banking operations, microfinance institutions must charge their lenders interests on loans. 

While these interest rates are generally lower than those offered by normal banks, some opponents of this concept condemn microfinance operations for making profits off of the poor.

Credit Score

The measure of risk. It is built up of:1. Payment history (35%) meaning how well you

have met your prior obligations, 2. Amount owed (30%) meaning your current

amount of debt, 3. Length of credit history (15%); being never been

late with payment over twenty years is better than being on time for two,

4. New credit (10%); each time you apply for credit, your score gets dinged a little, and

5. Type of credit used (10%); one credit card is less risky than a person with 10, so the more types of credit accounts you have, lower is the score.

Average values of the performance indicators 20% yield on gross loan portfolio; 1.7% adjusted return on assets; 105% operational self-sufficiency; 89% financial self sufficiency; 9% portfolio at risk (PAR) > 90 Days; 50.7% gross loan portfolio to total assets.